Can Dr. Doom Predict a Recovery?

Eighteen months ago, Nouriel Roubini was just another little-noticed economic Cassandra. Then Lehman happened. And AIG. And suddenly the dour academic was jet-setting all around the world, appearing nonstop on TV, and playing himself alongside Shia LaBeouf in 'Wall Street 2.' Benjamin Kunkel consults the recession's biggest star to find out what happens next

Eighteen months ago, Nouriel Roubini was just another little-noticed economic Cassandra. Then Lehman happened. And AIG. And suddenly the dour academic was jet-setting all around the world, appearing nonstop on TV, and playing himself alongside Shia LaBeouf in 'Wall Street 2.' Benjamin Kunkel consults the recession's biggest star to find out what happens next

I first met Nouriel Roubini on March 9, at a Dana Point, California, conference for options traders, in the midst of what he'd taken to calling his "world tour." The day before, he'd woken up in Chamonix, France, traveled by way of Geneva to London, and then flown London—San Francisco and San Francisco—L.A., arriving at the Dana Point Ritz-Carlton at two in the morning. Once installed in his hotel room, he wrote one of his pitiless blog posts: "How Low Can the Stock Markets Go? Much Lower.

Seven hours later, he addressed the options traders before being interviewed live on CNBC's Power Lunch. Then, after sitting down with me for a short interview, he was off again, taking a car to LAX and flying to Cartagena, Colombia, for another conference. And before I caught up with him three days later, in New York City, where his consulting firm, Roubini Global Economics, is based and he teaches at NYU's Stern School of Business, he would touch down in São Paulo to brief a Brazilian hedge fund, compose a longish blog post somewhat puzzlingly entitled "Bernie Madoff is the Mirror of a Made-Off Ponzi Economy," and tweet his Facebook friends: "Nouriel is taking a copter to the airport as Sao Paolo car traffic is THE worst in the world."

In the most severe economic crisis in eighty years, demand for just about everything seemed to be falling—everything, that is, besides Nouriel Roubini. Having predicted the meltdown more precisely than anyone else, he had become, to quote The Wall Street Journal, "the nearest thing to a rock-star among the economists." His audiences included hedge funds, European labor unions, and conclaves of wealthy South American families. "In Davos they basically threw themselves at Nouriel, asking, 'What's going to happen next? When? When?'" a Davos attendee told me. "They treated him almost like an astrologer. And it was just disconcerting to think, Oh, my God, these are the movers and shakers of the world, and they're that clueless and helpless."

When CNBC wasn't calling, it was Charlie Rose or The New York Times. And astonishingly—maybe crazily—Roubini appeared to be trying to match the demand for his presence with an equal supply.

As it happened, on March 9 the Dow and SP 500 both sank to their lowest levels in twelve years. Suddenly, in terms of the nation's portfolio, it was as if nothing at all had happened since Alan Greenspan warned of irrational exuberance in late 1996, and after Roubini's talk in the Dana Point Ritz-Carlton's gleaming ballroom, a scrum of traders and institutional investors gathered around him and pelted him with questions about just how much worse it could get: What would happen to the dollar? How much of their portfolios should they put into gold? A smooth-faced man with the alarmingly neat hairline of a recent hair-transplant recipient wanted to know if the Dow might fall to 6,000—it slipped just below 6,500 that day—and there were a dozen people waving their hands behind him, like faltering swimmers signaling a lifeguard.

It was a nervous time—for me, too, of course, and everyone I know. My father, whose retirement was looking about 25 percent less comfortable than before, had e-mailed me questions for Roubini, as had my friend Todd, who lives in a converted warehouse, has no health insurance, and does freelance IT work. The temptation was to treat Roubini as an all-purpose seer, to ask him—as I heard one person do—not just how high unemployment would rise next year but whether this level would trigger social unrest. Roubini's fame was an index of our confusion and distress, and my own questions for him included the obvious ones: Was the economy, in fact, falling apart? And if not, what would a recovery look like once it arrived?

Roubini fielded my questions kindly and patiently but seemed enormously weary. My first impression of him—with his boyish face and large, tired eyes, looking slightly heavy at the time, and dressed in what I later realized was practically his uniform: black suit, white shirt, no tie—was of a harassed and run-down panda bear. Being a macroeconomist, he is a student of what he calls, in his not quite idiomatic English, the "entire enchilada." This means there is a lot to cover. Roubini describes his method of working as eclectic, because his economic predictions rely on wide reading and ad hoc historical analogies as much as on mathematical models. Still, the more time I spent with the man, meeting with him over six months—from the lows of March through the "stress tests" of April and into September, when Ben Bernanke declared the recession "very likely over"—the more his approach seemed to me almost shamanistic. I mean: Just as the shaman will enter a trance and become a puma or an eagle, Roubini appears to be trying to plug himself in and be the global economy. If markets sleep for only a few hours, between the final bell on Wall Street and the start of trading in Tokyo, then Roubini, too, will sleep for only a few hours. If the crisis is global, then Roubini will fly from country to country every other day. And if the financial markets are one giant maw for the devouring of information, Roubini will slip away from every dinner party he attends to follow developments on his BlackBerry.

The nature of capitalism is that it just can't stop, and Roubini can't either—although, come fall, when he'd adopted an ercise regimen, lost a lot of weight, and gained an air of peacefulness absent from our first meetings, I found myself feeling more optimistic about his condition than about that of the U.S. economy. Roubini was going to be fine, but how about the rest of us?

Everywhere Roubini goes, people have two questions: "What's going to happen next?" and "Where are you from?" The curiosity about his origins derives from his air of unplaceable foreignness; you can tell he's not American born but can't immediately guess at another nationality. And in a way Roubini's authority seems reinforced by this cultural mysteriousness. After a global debacle of credulity—in which Spaniards and Irish people and Emiratis told themselves that the real estate bubble wasn't one, and Brazilians and Russians reassured themselves that any problems in the First World wouldn't spread to their own supposedly "decoupled" economies, and the Chinese kept loaning their savings to the overstretched Americans so that someone would absorb the consumer electronics and sporting goods they were turning out—it seems fitting that a man who saw through it all should be, wherever he goes, a foreigner. Someone who knows what's going on must be from somewhere else.

Roubini's peculiar accent is that of a transplanted Italian who still speaks Farsi with his parents and Hebrew with his other relatives. He was born in 1958, in Istanbul, into a well-to-do family of Iranian Jews. His father, a rug dealer, took the family to Tehran and Tel Aviv before settling, when Nouriel was 5, in Milan. As the eldest of three sons, Nouriel was expected to go into the rug business himself, but he discovered early on that he had no particular interest in his father's trade, in his parents' Orthodox Judaism, or in remaining part of the close-knit community of Iranian Jews in Milan. "I was kind of like a black sheep," Roubini told me one day last spring, at a restaurant not too far from the Tribeca loft where he lives alone. (He has never married.)

Still, I said, nobody dreams of growing up to become a macroeconomist. What had he wanted to be as a kid?

"When I was a kid," he recalled after a minute, "there was all this talk about the nuclear power, and nuclear weapons, so I thought that I would become a nuclear engineer." My own sense is that economics appealed to Roubini as a discipline that would allow the trait that sets him apart from most people—his exceptional intelligence—to enable his participation in the world. "The part that is intellectually interesting," he told me, "apart from the massive destruction, is that we are living history. And it affects everybody, and everybody talks about it and tries to suggest what can be done."

Roubini's CV is a roll call of prestigious institutions—Bocconi University in Milan, Harvard, Yale, the White House Council of Economic Advisers, the U.S. Treasury under Clinton, and now the Stern School—and he bristles whenever it's suggested that he toiled in obscurity before the crisis made his name. Still, knowledge of his work remained for the most part confined to his field until 2004, when he founded his consultancy—and an accompanying blog.

One night in February 2008, between two and four in the morning, Roubini wrote a post called "The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster," which in the months that followed came to read like an inverted Alcoholics Anonymous program: Follow these twelve steps and you will be thoroughly blotto, intoxicated with toxic assets. Looking at all the expected losses from mortgages and other loans gone bad, as well as from the so-called alphabet soup of credit derivatives, Roubini estimated total losses to the U.S. financial system of at least $1 trillion, at a time when other analysts were putting the number at $200 billion, or a fifth as much. "A near global economic recession will ensue," he wrote, "as the financial and credit losses and the credit crunch spread around the world."

This gloomy prescience transformed him into a celebrity economic bogeyman, a human rain cloud with a nickname befitting a comic-book villain: Dr. Doom. But Roubini is clearly more hero than villain; he has the comic-book hero's split personality. For ordinary social purposes, he is a pleasant, even gallant person. At one speaking engagement this spring, a woman told him that her son would be taking one of his fall classes at NYU. "If he has the good genes of a bright woman like you," said Roubini, "of course he deserves an A."

Yet when his superpowers of economic analysis are called upon, his manner changes in an instant. The sweetness drops away. He stares straight ahead. He reels off facts but consults no notes. He willy-nilly drops the s's from his plurals, mentioning, for example, the millions of "poor rural starving farmer" in China, and dispenses with articles: Sweden, when it nationalized its banks in the early '90s, "took bull by horns." At first you might suppose that Roubini is thinking in a foreign language, but it's not as though Italian—the main language of his youth—lacks for articles. Besides, he's less like this as Professor Roubini. The grammatical roughness, the frequent recourse to jargon and cliché, the quickness of utterance all belong especially to Dr. Doom, who mostly treats language as a syllabic obstacle course to scramble over in pursuit of the truth. And the pursuit is relentless.

"I spend half my time in airport security lounges," Roubini told me. "I have a computer, so I can work wherever I'm standing." At 51, he exhibits the poor posture and hyperactivity of a teenager. He is so tired from all the traveling that he will sometimes slump to one side when seated at a restaurant banquette; he is so energetic that he will then flop like a freshly landed fish to the other side.

Being a "work-alcoholic" (another Roubini-ism) takes a toll on his social life. The gossip blog Gawker, noting that Roubini—in the midst of a recession!—had allowed himself to be photographed in the company of younger women, labeled him a "playboy economist." In fact, his romantic life seems most notable for its near nonexistence. When we went to a dinner party one night, he joked that I was his first date in four months. During a period last year, he taught at NYU on Tuesday evenings and typically took a flight out of the country each Wednesday, to return on Sunday evening. This left him Monday evenings. "I would meet a woman, she would say, 'What, I am only good enough for a Monday?'"

"You could have said Monday was the new Friday," I offered.

"For me it was the only Friday."

"You can't even have a pet," I said.

"It would die," he confirmed.

"You can't have a plant."

"It would die," he said with a smile.

This gloomy prescience transformed him into a celebrity economic bogeyman, with a nickname befitting a comic-book villain: Dr. Doom. But Roubini is clearly more hero than villain; he has the comic-book hero's split personality.

In the early days of the post—March 9 stock-market rally, Roubini declared the whole thing "a dead cat bounce": no life in it. And yet all through the rainy, reluctant spring, the major indices kept climbing while glimmers of hope and green shoots were being spotted everywhere—corporate earnings picked up slightly, the rate of U.S. job losses tapered off somewhat, banks were found to look, if you squinted, more solvent than many had feared. And curiously enough, Dr. Doom was meanwhile more and more in demand, more famous by the day. Oliver Stone and Shia LaBeouf invited him to make a cameo appearance in Wall Street 2—as himself—and by May the dour genius with the funny accent was being parodied on Saturday Night Live.

It seemed a bit ironic. The zenith of Roubini's fame was coinciding with a moment when people wanted to believe that they didn't need to listen to him anymore. Maybe it was just one of those unbeatable jujitsu moves of the modern media world: To ignore a man, first make him famous. Or maybe his pessimism really had gotten the better of him and he wasn't extending a resilient economy the credit it deserved. An article in the April issue of Portfolio suggested that Roubini had jumped the shark: "If the economy turns up, he could go down as nothing more than a one-hit wonder." (Portfolio, a glossy magazine pitched to rich people, folded with its next issue.)

Roubini spends a lot of his time explaining why, despite signs of improvement, the U.S. economy is still limping from what he likes to call "a hard landing"—a fall from which you don't bounce right back up. He is forever describing recessions in terms of V's, U's, and L's. A V-shaped one is short and shallow, with a quick recovery (as in 1991–92 and 2001–02). A U-shaped recession is long and deep (like the sixteen-monthers of 1974–75 and 1981–82), and with the current recession having begun in December 2007 and unlikely, Roubini thought, to end before this December, it seemed this was the shape we were in. ("L" spells long-term stagnation, as happened to Japan in the '90s.) Still, Roubini expects the U.S. economy to grow again next year, thanks in part to the government's stimulus, if only at 1.5 percent—less than half its historical annual growth rate. And sensitive to charges that he's a perma-bear, he is always at pains to point out that he doesn't think the world is ending.

"If you ask about the medium term," he assured me one day over lunch, "actually, I think the opportunities for global growth on a sustained basis are quite positive. Right now the basic building block of global demand, the U.S. consumer, is faltering; therefore there's a lack of aggregate demand relative to supply. The supply has been rising because China and emerging markets have been investing so much in new factories and new productive capacity. A lack of demand relative to excess supply—that's what the global recession is."

It was debt-fueled American consumer spending that more than anything else had propelled recent economic growth across the globe. If Americans hung new flat-screen TVs on the walls of their houses, this kept Chinese factory workers employed; and if Chinese workers could therefore afford to eat more than in the past, this was a boon to Argentine soybean farmers, for instance, whose resulting demand for more petroleum to run their tractors contributed, in its way, to the high price of oil; and the higher the price of oil went, the more money the government of oil-exporting Norway, say, had to invest in its state-run pension fund; and if Norway's pension fund, which had loaded up on mortgage-backed securities, was to increase in value, this naturally depended on the capacity of Americans to continue paying the mortgages on the houses in which they were hanging their new TVs. It all worked very nicely, until it didn't. The flaw in the system was that it relied on American consumers spending more money than they were earning, money they would only ever earn if the value of their homes and 401(k)s kept rising. This was why Roubini called the U.S. a Ponzi country: "Ponzi borrowers," he noted, are, in the technical sense economists give the term, those who "need persistently increasing prices of the assets they invested in to keep on refinancing their debt obligations."

All through the Bush years, keeping the U.S. and global economies growing had required Americans to spend not just everything they earned but in many cases a good deal more. Spending became not only a kind of civic duty—everyone remembers the post—September 11 exhortation to go shopping—but an almost missionary project: Americans would save the world by absorbing its exports. We would save the world by not saving anything at all! We would give all we had and, through borrowing, more. The premise of all the borrowing and lending was always that the heroic, missionary consumer would one day come up with enough money to pay for everything he had bought, and bought—especially when it came to real estate—at inflated prices because everyone else had also been so eager to buy. Alas, in the end, this money was not forthcoming, because it would have had to come from income, and incomes weren't growing as fast as indebtedness. So the crisis was touched off by the first wave of defaults, the subprime stuff—and according to Roubini, there was still a lot more defaulting to come, on a scale neither Washington nor Wall Street was prepared to recognize.

On Roubini's Web site, you can read an explanation of why "a strong rebound is unlikely." Or you can remember the phrase the financial journalist Doug Henwood used to describe the economy in coming years: the routinization of crappiness.

"You have to have a complete rebalancing of the global economy," Roubini concluded. "These global imbalances are not sustainable anymore." In 2008, American consumer purchasing made up 70 percent of the U.S. economy—and nearly 20 percent of the world's. Now the U.S. and other debt-wracked countries, especially in Europe, would have to start saving. And other countries, notably China, Japan, and Germany—the exporting titans—that had saved more than they spent would now have to learn more extravagant ways. By summer's end, this had become the conventional wisdom—the G20 summit in Pittsburgh produced a communiqué calling for exactly the same thing.

Yet you notice a few things about this line of reasoning. First of all, even when he strains for optimism, Roubini is talking about a complete rebalancing of the global economy, something that arguably hasn't happened since 1945. Second, his hopefulness pertains to the world economy as a whole rather than to the U.S. specifically. For Americans, Roubini imagines a future of weak recovery and increasing thrift—of tight credit, high unemployment, and (if oil prices rise while overall growth remains weak) possible '70s-style stagflation. Anyone who ever fell off a bike as a kid remembers that variety of hard landing in which the relief you feel that you aren't as badly injured as in midair you feared you would be gives way to dismay that now it hurts to walk. On Roubini's Web site, you can read a wonkish explanation of why "a strong rebound is unlikely." Or you can remember the more colorful phrase the financial journalist Doug Henwood used in anticipating the years ahead: the routinization of crappiness.

This rhymes nicely with the pursuit of happiness but is bound to feel pretty different. Across the span of my lifetime, the generally fast-growing U.S. had been the anomaly among rich countries, a peak surrounded by lowlands, and the more time I spent with Roubini, the more I wondered whether, with this latest recession, we Americans weren't trudging down the mountain of special prosperity for good.

Roubini and I had spent a lot of our time together in downtown bars and restaurants that, like many places in New York this year, featured loud pulsing music and a sparse clientele, as if a partying soundtrack could conceal the lack of partiers, spenders, takers-on of debt. The world economy was going to miss those people, and we Americans, I felt, were going to miss being them. I could dimly remember, from my 1970s and early-'80s childhood, a mood of national chagrin percolating into the household, a sense among my parents and their friends—a sense simultaneously abashed and nostalgic—that it had been a pretty crazy party, and now the party was over. One of the first things I knew about my country was that its best days were past. And then, for a number of years, with the end of the Cold War and the huge morphing bubble that came after—the bubble that swelled and shrank and swelled again, from the dot-com craze through the real estate boom—I felt that we'd all been reprieved, restored to national glory. Not that I myself made any money from the bubble, but I derived a little surplus sensation of significance and prestige from being American at a time of such incredibly rolling prosperity. Life outside the bubble threatened to feel flatter, colder, grayer, as well as more anxious—on the whole, much more middle-aged—than the warmly self-important life inside.

I'd asked Roubini for some reflections on what might happen to his adopted country in the pinched, precarious years ahead. But this was one question he always refused to answer. "That's not my comparative advantage," he would say.

I'd asked Roubini on a number of occasions for some reflections on what might happen to his adopted country in the pinched, precarious years ahead, as the routinization of crappiness set in. How would people used to perpetually brightening future prospects accustom themselves to something closer to stagnation? But this was one question Roubini always refused to answer. "That's not my comparative advantage," he would say about social and cultural matters. He just does the math and leaves the rest to us, to confront with whatever comparative advantage we can muster.

As the year wore on, Roubini became increasingly isolated in his pessimism. By the end of summer, the Dow was up almost 50 percent since March and mounting higher with each week, soon to cross 10,000 again. Among the best performers were financial stocks, as the banks booked large profits—and postponed into the indefinite future a full acknowledgement of their losses. "Delay and pray," Roubini called the tactic.

One balmy mid-September evening, I went to hear him give a talk at the Down Town Association in New York, hardly a block from Wall Street. Stepping into the club, you would never have guessed that, a year before, capitalism had seemed to be plunging into one of its worst-ever crises, or that crises occurred at all. The great heavy cream-colored drapes in the dining room, the pale blond herringbone floor, the tall pilasters with their gilt entablature, the portraits in oil of past association presidents with names like A. Pennington Whitehead—everything suggested the most durable and unshakable prosperity.

Tonight Roubini would be addressing a group of important brokers and bankers known as the Money Marketeers. The Marketeers were founded in homage to one Marcus Nadler, a penniless Austrian immigrant who rose to join the Federal Reserve and, at the outset of the Great Depression, enunciated what the Marketeers Web site reverently calls Old Doc Nadler's Remedy: "You're right if you bet that the United States Economy will continue to expand," Nadler declared. "You're wrong if you bet that it is going to stand still or collapse."

Over the summer, Roubini had hired a personal trainer, and he was looking compact and slim inside his suddenly too roomy panda outfit. "I started ercising every other day," he said. "I was feeling grossed out." He might still be traveling too much—"Being on an airplane on Rosh Hashanah night is a bit pathetic," he told me—but in August he had gone so far as to take "a real three-, four-day vacation" as a guest of George Soros. The taste of idleness seemed even to be influencing his economic thinking. "We don't include leisure in our measure of GDP," he complained.

But behind the lectern, it was the same as ever, Dr. Doom delivering his prognosis in a heavy monotone. "The key issue," he said, speaking too close to the mike and in this way giving his pronouncements a special booming harshness, "is not whether the recession is over today or in three months but whether over the medium term growth is going to be robust or anemic, or even whether there's a risk of a double-dip recession." (The letter W, for double-dip, had been added to Roubini's grim alphabet of V's and U's.) "And I believe the recovery is going to be anemic." He laid out the persistent sources of this persistent belief: Banks, with their bad assets still weighing on them, remained unable and unwilling to lend as before; U.S. households were increasingly indebted and decreasingly employed; and corporations were still improving their balance sheets by cutting costs (including jobs) rather than increasing revenue.

The assembled Marketeers responded with polite, if skeptical, applause. They no longer had much need for Dr. Doom. Financial institutions that a year before had been considered too big to fail were now, thanks to consolidation, even bigger. The government guaranteed their survival, underwrote their bonds, and provided them virtually free money, which they could employ speculatively or—something they were less interested in—loan to businesses and consumers. ("Too big to fail is now too bigger to fail," Roubini told me. "Welcome to the great financial crisis of 2014.") In the first days of the rally, the incurable optimists who dominate shows like Fast Money had sometimes worried that the market was getting ahead of itself: "Did today's late slide confirm Roubini's view?" asked the crawl at the bottom of the screen when the numbers ran red and the arrows pointed down. But by September, the equity-price cheerleaders were hardly looking back and ordinary investors were pouring their depleted savings into the market. The day of Roubini's Marketeers speech, Ben Bernanke would declare the recession likely over, and the CNBC ticker posed the question: "A V-shaped recovery?"

As the clapping died down, I turned to the guy sitting next to me and asked what he made of Roubini. Divyesh, a bright-eyed 28-year-old from New Delhi, had arrived in New York exactly one week before, to work for the Dutch insurance conglomerate ING. He could see, he allowed, why everything Roubini had mentioned might amount to a very big problem. "But I am very bullish. I have not a penny in bonds—all in stocks!"

There it was: Old Doc Nadler's confidence potion flying off the shelves. Was it possible that Roubini, through an excess of rationality, had failed to contemplate the resilience of what someone once called America's Wile E. Coyote economy? Wile E., of course, could run across thin air as long as he believed it was solid ground; and even after he took fright, glanced down, and plunged to the bottom of the canyon, he immediately sprang back up and took off again in search of his prey. His foolishness was a kind of genius—no hard landings for him.

So, I asked Divyesh, what had the market gotten right that Roubini hadn't?

"His reasoning was very correct," Divyesh replied. "But the results of it were not."

_Benjamin Kunkel is the author of Indecision and an editor-at-large for _n + 1.

Use of this site constitutes acceptance of our User Agreement (effective 1/4/2014) and Privacy Policy (effective 1/4/2014). GQ may earn a portion of sales from products that are purchased through our site as part of our Affiliate Partnerships with retailers. The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with prior written permission of Condé Nast.